The insurance industry plays a critical role in transferring risks away from consumers and businesses by distributing risks among large pools of customers. Although there is increasing acceptance of life insurance, at 2.8 percent of GDP, life insurance penetration in Malaysia is still low relative to other developed nations such as Singapore (6.1 percent) and Japan (7.5 percent). This is mainly attributed to a lack of disposable income among low-income earners to buy protection.
Everyone in a high-income economy deserves peace of mind from the financial security afforded by insurance. By 2020, Malaysia intends to increase its life insurance penetration to 4 percent of GDP or 75 percent of the population.
Create employee insurance scheme. An Employee Insurance Scheme (EIS) will be launched for the benefit of low-income employees. EIS is a basic, low-premium term life insurance scheme. Enrolment in the EIS is automatic, but there will be a convenient opt-out option. Participants will also be able to opt into additional critical illness and hospitalisation benefit coverage. Premium payments will leverage on the existing infrastructure of agencies such as the Employees Provident Fund (EPF) and the Social Security Organisation (SOCSO). The key features of EIS will be clearly communicated upfront and extensive education efforts will be undertaken to educate the public on the importance of insurance.
Improve tax treatment for life insurance. Currently, a combined personal tax relief of RM6,000 is provided for EPF contributions and life insurance premiums. In addition, there is a RM3,000 relief for medical and education insurance and a RM1,000 relief for annuity products. However, for the upper middle- to high-income segments, EPF contributions often fully utilise the RM6,000 limit. Furthermore, certain segments of the population may not access the relief for medical and education insurance and annuity products.
Going forward, separate tax reliefs of RM6,000 each for EPF contributions and insurance premiums will be introduced (a net increase of RM2,000 in relief). This change provides greater flexibility for individuals to select insurance products to suit their needs. This relief covers both conventional insurance and takaful products.
In August 2011, the 1Malaysia Micro Protection Plan (1MMPP) has been developed to enhance accessibility and affordability of insurance and takaful protection for Malaysians.
1MMPP has been jointly developed by Bank Negara Malaysia, Life Insurance Association of Malaysia, General Insurance Association of Malaysia and Malaysian Takaful Association. At affordable rates starting at less than RM20 per month, 1MMPP will provide insurance and takaful coverage for death and disability, personal accident, hospitalisation and protection of property against natural disasters.
Currently, several banks such as OCBC, Ambank, and Public Bank Berhad are working in collaboration with insurers and takaful operators such as Great Eastern, ING, and Amlife Insurance to distribute the 1MMPP. A survey was done to construct measure for insurance penetration rate by income levels.
BNM conducted a survey to measure insurance penetration rates by income level. Full results are not yet published, but a brief write-up can be found on page 59 of Financial Stability and Payment Systems Report 2011